PAM 200 Final Key Pointers - I.Basics of budget constraints...

I.Basics of budget constraints and Indifference curves c. How to solve mathematically for initial and final optimal pointsIncome = PxX + PyYPx/Py = MUx/MUyFrom first equation you get Y (get y on one side) and plug it into second d. Solve for income and substitution effectsEquivalent and compensating variation versus consumer surplusHow much willing to maintain price, how much willing to pay for cheaper pricee. Be able to analyze diagrammatically basic applicationsIn-kind transfersII. Edgeworth BoxReviewIV. Time value of moneyd. The theory of the mine: X. Applications of game theory to duopolya. Bertrand equilibrium; Price competition down to P=MC w. zero profitsb. Cartel solution; Decide to work together to avoid Bertrand but prisoner dilemma arrisesc. Cournot equilibrium; in the nash cournot model; firms see other firm productions and select their own output levels. They incorrectly assume the other firm wont adjust output in

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Unformatted text preview: response. By analyzing lets say the equation is P= 120- Q so MR is 120 – 2q, and firm A is producing 60 therefore the new firm B will produce P = 120 – (60 + 2Q), so in order to maximize revenue B produces 30 Then because b is at 30, a does 45, then A and B continuously change till the equilibrium is at A=B which is at 40, to verify this we plug 40 into each RF and price is 40 dollars, total profits 3200; two firms would have been better off if they split the 3600 `d. Stackelberg equilibrium; which firm is more brave and doesn’t want to change; similar to the game of chicken, when you realize that cournot will happen if another firm happens and one firm holds price and hopes the other firm wont change it For normal goods, Compensating Variation, <CS, <Equivalent Variation For inferior goods Equivalent < CS < Compensating Compensating is steeper than ordinary if its normale...
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